Synutra Chairman Zhang Says Milk Allegations to Hurt for `Several Months'

Synutra International Inc., the Chinese maker of baby formula cleared of having abnormalities in its milk, may be damaged for “several months” by a report that linked its products to sick infants, Chairman Zhang Liang said.

China’s Ministry of Health said Aug. 15 an investigation found no links between Nasdaq-listed Synutra’s baby formula and premature maturing in three infants in the city of Wuhan. The company’s products are safe, said Zhang, who founded Synutra in 1998 and says he’s fed all three of his children on the milk.

“We will surely be affected by this incident for several months but I don’t expect the cycle to be long,” Zhang said in an interview at Synutra’s offices in Beijing. The company is evaluating the “immediate” damage to its sales, he said, without giving more details.

Synutra’s shares fell 27 percent in Nasdaq trading on Aug. 9 after the Oriental Morning Post reported that three girls diagnosed with premature development in which they appeared to have grown breasts had all consumed the company’s baby formula.

It was the biggest one-day drop for the stock since 2008, when Synutra was among 22 companies whose products were tainted with the chemical melamine. At least six babies died and about 300,000 others were sickened across the country.

Synutra’s shares closed 7 percent lower at $13.25 in New York yesterday, down from $17.41 before the newspaper report.

Consumer mistrust is a problem for the entire Chinese food industry, Zhang said. “As soon as you mention food safety, the immediate response of customers is there’s something wrong,” he said. “This is a fact of our food industry.”

Hormone Levels

Medical examinations of three girls in Wuhan between the ages of four months and 15 months found the level of the hormone estradiol in their bodies was as much as some adult women, the Health Times newspaper reported Aug. 5. The hormone controls the growth of female sexual organs, according to the Oxford English Dictionary.

The girls had consumed the same baby formula, the newspaper reported, without identifying the producer. The Oriental Morning Post reported Aug. 7 that all three were fed baby formula produced by Synutra.

China’s Ministry of Health said Aug. 15 that an investigation of the company’s products found no link with the premature development of the three girls. No banned hormones were found in tests of Synutra infant formula, the ministry said.

Synutra, as it continues efforts to convince Chinese consumers its products are safe, will need to spend more to “communicate with our customers,” Zhang said. The company spends about 100 million yuan ($14.7 million) each year on advertising, he said.

Education Fund

The formula maker has additionally set up a 10 million yuan fund to finance studies on causes of and treatments for premature development in infants, and to educate the public on the issue, the company said in an Aug. 16 statement.

Synutra distributes products through a network covering 30 provinces and municipalities in China. It was one of 22 companies forced to recall products in September 2008 after China’s Administration of Quality Supervision, Inspection and Quarantine found them tainted with melamine, a chemical used to produce plastics that can also be used to make protein levels in watered-down milk appear higher.

--Yidi Zhao, Vincent Ni in Beijing. Editors: John Liu, Ben Richardson.

To contact Bloomberg staff on this story: Yidi Zhao in Beijing at +86-10-6649-7575 or yzhao7@bloomberg.net Vince Ni in Beijing at +86-10-6649-7521 or vni1@bloomberg.net

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